75: Sin Tax Scandal? The Hidden Underbelly of these Buzzy Excise Taxes

We all think we understand sin taxes, but do we really? Sin taxes are typically excise taxes that target behaviors that we want to discourage. Common examples include taxes on booze, sugar, and cigarettes.

Do we legalize certain activities and substances just so we can tax them? What’s the intention behind sin taxes, and are they really working as intended?

On today’s episode of the Taxgirl podcast, Kelly is joined by Thomas Shohfi to chat about the nuances of sin taxes. Thomas is an assistant professor in the Lally School of Management at Rensselaer Polytechnic Institute. He recently conducted a study on sin taxes with some surprising results.

Listen to Kelly and Thomas talk about the consequences of sin taxes:

• What are the details of Thomas’s research on sin taxes, and what were some of the interesting highlights that came from the study? The study focuses on New York City taxi drivers, and under which circumstances they add certain rates to their fares.
• When it comes to cigarettes, how might the difference in taxation on a single pack vary from state to state, and how can that alter a smoker’s behavior? What are the governmental implications and social consequences of this particular sin tax?
• Thomas speculates that there are many unintended consequences and “third party effects” that stem from sin taxes, and that much more research into the subject is needed. For addiction-related issues in particular, such as gambling and cigarettes, there are many potential disruptions and unseen consequences that may come from long term implementation of sin taxes. Does making the cost of gambling higher actually help a gambling addict to get help? Does increasing the cost of a pack of cigarettes really dissuade a lifelong smoker?
• What about marijuana? Many sin taxes are placed on substances and activities that are currently legal today, that didn’t used to be (such as booze). We legalize it, we tax it. But what is the right amount of taxation? Is it a paradox to legalize a substance, only to slap on a tax meant to discourage the use of that substance?
• Governments can easily put together calculated projections for taxes based on sales of particular goods. But long term research and statistics on sin taxes can become far more complex. How does Thomas suggest researchers pitch these studies, and how might they be organized or funded in the future?
• How might the existence of sin taxes affect people’s opinions on the activities and substances themselves? What do people think about people who partake in those behaviors, what do people think about a government that classifies certain things as taxable “sins,” and how do they draw ideological lines in the political sands?
• What behaviors does Thomas think may be taxed in the future? Kelly and Thomas discuss sex work, on OnlyFans in particular, and what a sin tax on the platform might look like.

More about Kelly:

Kelly is the creator and host of the Taxgirl podcast series. Kelly is a practicing tax attorney with considerable experience and knowledge. She works with taxpayers like you every day. One of the things that she does is help folks out of tax jams, and hopefully, keep others from getting into them.

You can find out more about Kelly here and you can follow her on Twitter, Facebook, Instagram, and Linkedin.

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Links:

Kelly’s Website – Taxgirl

Thomas’ Website – Shohfi.com

Thomas’ Papers – Papers

Thomas’ Sin Tax Piece – Do Sin Tax Hikes Spur Cheating in Interpersonal Exchange?

Roger White’s Papers – Papers